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Life insurance and your limited company

limited company director

Business owners looking to get life insurance can benefit from paying for the premiums through their limited company. When you’re a business director, obtaining life insurance can not only help your business to survive but also protect your family.

If you have a limited company and are a salaried employee, there are cost-effective ways to obtain your life insurance. Premiums can be paid for by the business and then offset against corporation tax to make savings each year. This can work for directors as well as other members of your team.

Benefits for small businesses

Previously, small businesses were unable to obtain life insurance for their employees. They were too small to qualify for a group life scheme so personal policies would need to be set up. These policies were heavily taxed as a P11D benefit-in-kind, making them more expensive and not very attractive for employers.

Now, the insurance market has introduced policies such as key man insurance and relevant life cover which provide ample benefits for small limited companies. It enables directors and employees to take out a life insurance policy that pays back into the business, or to your family. Both policies come with tax benefits too. With small businesses making up 99.3% of all private sector business in the UK, we hope that more people can benefit from this type of life insurance.

Key man insurance

Key man insurance is designed to protect your business against the loss of a crucial member of the team. A key employee can be anyone from a business director to a software developer. Anyone who you deem to be important in terms of business continuity. The business pays for the premiums and the money can go back into the business to pay for any loss of trade and profits as well as cover any recruitment costs.

Key man insurance is attractive for business directors in particular because it can be offset against corporation tax. Business owners with a majority share in the business can also benefit, although they lose the ability to run the premiums through as an allowable expense. If that’s the case, then the payout is often tax-free instead. It can help to cover loans and debts of your business written in your name and keep the business running.

business director

Relevant life cover

Relevant life cover is available for all salaried employees working for a limited company. The company pays for the life insurance premium, but the money goes towards the insured individual’s chosen beneficiaries. Relevant life insurance works as a death-in-service benefit and can be used as remuneration for the employee’s services. Therefore, it does not need to be declared on the P11D form. The premiums are an allowable expense for a limited company, and national insurance contributions are not required to be paid.

A relevant life policy is written into a discretionary trust so that the individual has full control over who receives the money and how much. The policy works on a single-life basis, which works great for small businesses with one or two directors who cannot qualify for a group scheme.

Protecting your limited company

These types of life insurance policies provide more benefits for those working within a limited company. Sole traders and partnership do not get the same tax benefits when obtaining key man insurance. Relevant life cover is only available if there is an employee and employer relationship.

Business life insurance policies such as key man insurance and relevant life cover can help to protect your company. Losing a key member of the team means you could face financial difficulty and lose out on profits. Key employee insurance can help to overcome this. It also means you can provide an attractive benefits package to hire and retain high calibre employees without having to spend a fortune.

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